Stockwatch Energy today
Energy Summary for June 6, 2022
2022-06-06 20:37 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for July delivery lost 37 cents to $118.50 on the New York Merc, while Brent for August lost 21 cents to $119.51 (all figures in this para U.S.). Western Canadian Select traded at a discount of $18.54 to WTI, down from a discount of $18.01. Natural gas for July added 80 cents to $9.32, closing above $9 for the first time since 2008, on dwindling supplies and blistering temperature forecasts. The TSX energy index added 2.20 points to close at 276.78.
As U.S. natural gas benchmarks raced to a 15-year high, investors turned their attention to gas producers in Canada too, where gas prices trade at a discount to the U.S. market but have nonetheless soared. The spot price for AECO, the Alberta gas benchmark, settled today at $7.21. This is more than double AECO's average $3.37 in 2021 (which itself was a 60-per-cent increase from $2.11 in 2020). One Alberta gas producer, Peyto Exploration & Development Corp. (PEY), today added $1.29 to $16.76 on 2.41 million shares. It got an extra boost from a monthly letter to shareholders published on its website by chief executive officer Darren Gee.
As usual, the letter included an estimate of Peyto's monthly production. Mr. Gee said this averaged 104,000 barrels a day in May, same as April (and up from an average of 101,000 in the first quarter). From January through April, Peyto spent $205-million of this year's budget of $350-million to $400-million. (The spending estimate trails the production estimate by one month.)
The rest of the report was a love letter to high prices and an anything-but-love letter to the Canadian government. To hear Mr. Gee talk, the entire industry is enjoying "fantastic returns," courtesy of record highs in gas prices as well as an ingrained habit of keeping costs trim (since it was not all that long ago that prices were at record lows). "[This] should be motivating us ... to invest all we can into new wells and increased production," mused Mr. Gee. The fact that it is not, in his opinion, is because the industry is remembering what happened last time it tried to do this. Companies did their part, significantly boosting production, but governments kept "getting in the way" and cancelling or hindering the infrastructure that would have allowed those supplies to reach the market. The end result was that prices plunged and even went negative in 2018.
Governments are showing no signs of ending their "bad energy policies," continued Mr. Gee. On top of that, there is a shortage of rigs and workers (which he also blamed on the demonization of the energy sector by governments and global organizations). "So, like Peyto, our industry has decided, why fight it? Why not just invest less, supply less, [and] enjoy higher commodity prices and greater profits?" he wondered rhetorically. That is indeed Peyto's plan, for now. He left the door open to a change. "We plan to be in this industry for a long time," he declared, "so we can be patient."
Elsewhere in Alberta, oil sands producer Athabasca Oil Corp. (ATH) added nine cents to $3.15 on 33.9 million shares, as it trumpeted its rising production and its newfound inclusion in the S&P/TSX Composite Index. The latter news came out after the close on Friday (as discussed in Friday's Energy Summary), when the index released the results of its quarterly rebalancing review. Athabasca, Spartan Delta Corp. (SDE: $15.99), Precision Drilling Corp. (PD: $104.96) and Pason Systems Inc. (PSI: $16.53) became the 13th, 14th, 15th and 16th energy companies added to the index in the last nine months alone. They will join the index effective June 20 and should enjoy buying support from index-tracking funds.
As for its production, Athabasca noted that its core asset, the Leismer oil sands project, has completed its seasonal maintenance and is back to producing about 20,000 barrels a day. Over all, Athabasca predicted that it will be "at the upper end" of its full-year guidance range (for all of its assets) of 33,000 to 34,000 barrels a day.
The company's other big goal for 2022 is to be in a net cash position. Net debt was $127-million as of March 31, 2022, a steep drop from about $380-million two years earlier, as Athabasca has been pouring extra money into bond buybacks and redemptions. More recently, it has jumped on the bandwagon of hinting that share buybacks or dividends could be on the way too. "The transition of enterprise value to equity holders is materializing," is how president and CEO Rob Broen chose to phrase this in today's update. He promised to provide "guidance on the company's return-of-capital strategy" in the second half of the year.
Further afield, Jeff Chisholm's Pan Orient Energy Corp. (POE) added four cents to $1.03 on 1.26 million shares, after arranging a takeover and a spinout. The company will sell itself and its core assets in Thailand to the Malaysia-based Dialog Group Berhad for 78.8 U.S. cents a share. Its non-Thai assets, including a 71.8-per-cent interest in private Canadian oil sands explorer Andora Energy, will go to a newly created company, CanAsia Energy, to be owned by Pan Orient's current shareholders and led by its current management.
The deal keeps a promise that Pan Orient made about eight months ago, when it vowed to explore a "new direction." It began marketing its Thai assets -- as well as the Canadian ones, though clearly that did not pan out as far as Dialog Group Berhard was concerned -- and said it would "pursue international oil and gas opportunities with a substantially scaled-down cost structure." The combined takeover and spinout transaction will accomplish part of that goal while putting some direct cash in shareholders' pockets. Subject to shareholder approval, management expects to close the deal in mid- to late August.
After that, management will turn its focus to CanAsia, and to finding and closing an acquisition in order to bring the "Asia" part of its name to fruition. (It seems that, for CanAsia just as for Pan Orient, the Canadian assets in the oil sands will be mostly an afterthought.) It will have $7.1-million in working capital to start its search.
While Pan Orient had not previously specified where it was seeking "international oil and gas opportunities," the fact that it has clearly chosen Asia is no surprise. Southeast Asia is where CEO Mr. Chisholm has spent most of his career, even before he took charge of Pan Orient way back in 2005. Before that, he was the main geoscientist at the once-prominent Niko Resources when it was making sizable gas discoveries off the coast of India. Niko is not prominent anymore, except perhaps in discussions of the worst market flame-outs. The now-delisted stock spent 2010 to 2019 tumbling from a high of $115 to exactly one penny at the time of its delisting -- a 99.99-per-cent plunge in value.
© 2022 Canjex Publishing Ltd. All rights reserved.